One-stop shopping has jumped from the suburban mall to the local doctor's office. Patients expect to visit their primary care doctor for a routine physical, some allergy pills or treatment for flu-like symptoms. But today, it's becoming increasingly common to make an appointment for a physical and also receive immunizations for an upcoming trip to China, buy an assortment of herbal remedies, undergo an acupuncture treatment or even have your bone density measured.
"Pressure on physician economics and lower reimbursement have made it necessary for physicians to look at all sources of revenue and develop new lines of business such as elective cosmetic procedures or alternative medicine," says Oliver Rogers, senior vice president, division operations, for Phycor, the Nashville, Tenn.-based practice management company. "As the price of technology decreases, what physicians once farmed out to a hospital or a specialist they now handle in their own practices." He estimates that about 10% to 30% of total revenue for a multispecialty practice, aggressively going after the niche marketplace, is generated from these ancillary services. While he says there is more consumer acceptance and potential for growth, it is difficult to pinpoint just how rapidly the sector is growing.
Managed care has both inhibited and stimulated niche healthcare services by refusing to pay for them while creating a market for those patients willing to pay out-of-pocket.
"Managed care organizations have a love-hate relationship with medical groups offering niche services," Rogers says. "While they espouse the benefits, they are slow to reimburse for many of them. And many consumers are not accustomed to paying out-of-pocket, although they are becoming more willing."
"For something like diagnostic services," adds William Comte, president and CEO of Premier Practice Management in San Diego, which manages 15 groups nationwide, "some managed care organizations have already contracted with a specific surgical or diagnostic center and may not reimburse members who go elsewhere. For cosmetic services, however, patients expect to pay out-of-pocket."
While some medical groups acknowledge they are adding ancillary services to bolster the bottom line, they are quick to defend their financial motives. HealthMark, a three-internist practice in Denver that sees about 1,500 patients a month, has embraced alternative care and derives nearly 40% of revenue from the services.
One of the internists, Robert Gleser, M.D., says the decision to add alternative medicine was driven by pure interest on the part of the three internists who endorse complementary medicine. Two of the physicians who practice acupuncture--Gleser also does acupuncture and prescribes herbal supplements--are joined by a nonphysician acupuncturist/herbalist, chiropractor, nutritionist, physician therapist and psychologist.
"Physicians in a group have to champion the services, believe in them and practice them," Gleser says. "You may be able to offer (physicals for executives) or travel medicine just for the money, but the kind of patients you attract with alternative care would know if that was your only motive; they want a commitment."
HealthMark does offer travel medicine services and executive physicals. These longer, more comprehensive physicals often include a blood profile, stress tests, screenings for vision and hearing and sigmoidoscopies paid for by companies for their executives. In some cases, Gleser says, HealthMark negotiates with a company to provide additional services such as acupuncture, massage or stress management.
HealthMark, Gleser says, has integrated alternative care and traditional medicine so the two work hand in hand. "We make a Western diagnosis and then determine options for care--whether it be a medical or complementary point of view," he says.
"If physicians are excited about a modality and can provide good outcomes, the efforts will be successful," Comte says.
Ron Charpentier, executive director of Harbin Clinic, a 105-physician multispecialty group in Rome, Ga., acknowledges that the clinic needs new sources of revenue not only to compensate for lower reimbursement but also to make the practice more attractive to new patients. "People will always demand choice, and we offer the ability to choose the best," he says. "We have brand name recognition in our geographic area as a center of excellence."
Harbin is the state's largest clinic. It offers a menu of specialty services: home infusion therapy; a boutique retail pharmacy, which Charpentier says enables the clinic to provide the latest drugs at competitive prices; LASIK eye surgery; the Vitality Wellness Center, a health and wellness venture pulling in just enough money to cover operations; alternative care chiropractic, acupuncture, massage therapy and herbal supplements. It also participates in as many as 25 clinical research trials, which is a half-million dollar enterprise for the clinic. "The trials allow us to bring in therapies not yet available to the public or affordable to patients," Charpentier says. Ancillary services account for 30% of total revenue.
He declined to provide revenues for the clinic, which has about 40,000 patient encounters a month.
Charpentier says Harbin will continue to offer a specific service--although it may only break even--if it improves the health of patients and enhances the patient-physician relationship. Harbin is currently working with payers to cover a planned biofeedback program that would treat female incontinence.
Physicians for Women's Health (PWH), based in Avon, Conn., is a group practice comprising 140 OB/GYNs in 26 different sites. Its niche services are varied like Harbin's and at least are breaking even. "We believe that people will pay for noncovered services if they are competitively priced and high-quality," says Mark DeFrancesco, M.D., chief medical officer of Women's Health Connecticut, which administers the niche services.
PWH offers nutritional supplements and vitamins, which a management committee analyzes for quality and cost-effectiveness. The medical group educates its medical and nonclinical staff about the products--many sold at discount prices--so that they can make appropriate recommendations. PWH also sells skin cream; conducts laser hair removal treatments and bone density tests, each generating about $2,000 a month; participates in clinical trials; and is piloting micro-dermabrasion, a skin peel for removing wrinkles.
DeFrancesco estimates that about 8% to 10% of the practice's gross revenues, which total about $70 million to $80 million annually, come from ancillary services. Profit margins on ancillaries typically range from 10% to 20%.
Many practices admit they did not do formal market research to gauge how well accepted the nontraditional products and services might be. Instead, they rely on anecdotal evidence and discussions with patients.
"You have to look at patients as consumers and decide if the marketplace has the right demographics to support the services--whether there are enough families with a certain annual income who not only can pay for the specialty products and services but also want them," says Maureen Swan, a principal with The MedTrend Group in Minneapolis.
She believes that the market is primed for niche healthcare services since aging babyboomers are seeking upscale products that add value or convenience. "But if you are going to offer a $2,000 executive physical, the environment needs to look, feel and smell upscale," she adds.
This raises the question of whether niche services fall into the "luxury" category. Jim Bethea, CEO of Jackson (Miss.) Medical Clinic, a 37-primary care physician practice, says they do not. However, he is exploring the idea of designing a special area for corporate health that would house faxes, computers and phones so that executives can work while waiting for test results.
The three-hour examinations include a panel of preventive and diagnostic screenings, such as an EKG, chest X-ray, flexible sigmoidoscopy and prostate-specific antigen. They are paid for by the executives' companies.
HealthMark has created a separate facility for alternative medicine, guided by feng shui, the Chinese philosophy focused on arranging the physical environment to maximize balanced energy. The result is a tranquil waiting room and treatment rooms, highlighted by water fountains, controlled lighting and music. The setting contrasts with the traditional, more sterile treatment rooms used for Western medicine.
Retail products need little advertising--they are on display in the physician's office. Selling services requiring technology is another story, Swan says. "There is more risk involved because of the higher expense so physicians need to not only use traditional means of advertising--radio, print, public relations--but also develop buy-in from other practices so the service can be referral- driven."
Bethea agrees that getting other physicians on board as a source of referrals for endoscopy, another Jackson ancillary service, is key to marketing efforts.
As the practice gears up to expand corporate care, it is targeting top companies in the area and arranging face-to-face meetings with human resources departments.
Jackson currently has about 3,500 patient encounters a month.
The Harbin Clinic has taken a slightly more aggressive approach by advertising via television, newspapers and the Internet, sending out brochures and attending senior forums in order to be seen, as Charpentier says, as a good "corporate citizen." The clinic spends $250,000 annually on advertising and marketing.
DeFrancesco says Women's Health Connecticut spends less than $10,000 annually on advertising and marketing, but the organization is thinking of creating an advertising budget.
Breaking out the traditional mode of healthcare services often takes retooling--learning new clinical and administrative skills, investing in equipment and technology, outsourcing, and advertising.
For some practices, billing presents a challenge: Many of these services are paid out-of-pocket with little insurer reimbursement, a new ballgame in parts of the country penetrated by managed care.
What has been confusing for Gleser is determining what constitutes a billing unit--one visit or an acupuncture treatment--what billing codes to use and what is covered by insurance. By working closely with payers, however, he has solved the problem. He also has had to contract with vendors for acupuncture needles and herbs, a distribution channel that he has found to be less organized than the one for medical supplies.
It's a different story for Bethea. Managed care is almost unheard of in Mississippi. What he had to ensure was that his nurses received life-support certification and that properly trained anesthesiologists are on board to minister to patients undergoing endoscopy.
Jackson now owns a single-specialty ambulatory surgery facility enabling it to not only do the procedure for Medicare and commercial patients in the office, but, thanks to a recent change in Medicare reimbursement laws, charge a facility fee. It's what Bethea says was the driving force behind offering the service, which generates as much as $600,000 a year. Jackson also derives $500,000 from clinical trials and provides travel immunizations. By identifying patients through electronic medical records it has been able to eliminate some staff. One of the objectives is to change the payer mix away from Medicare.
For DeFrancesco, getting all of the physicians on the same page--embracing the ancillary services and making the needed investments in them--has been one of the biggest challenges. The practice also had to add staff and retrain existing employees, as well as develop some home-grown diagnostic and treatment codes, an investment in retooling rather than in capital equipment. "But you have to spend money to make it," he says.
Swan predicts that medical groups never will be able to derive total revenue from niche healthcare services. "They are not a silver bullet; most practices can't forgo managed care entirely," she says. She advises physicians to pay attention to legal risks, evaluate their comfort level in offering these services, and determine the value they add.
Mari Edlin is a Mill Valley, Calif.-based writer.